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Saturday, May 01, 2010

Buffet on Goldman

NYTimes: ... Mr. Buffett said that he feels little sympathy for the firms the S.E.C. says were hurt by Goldman’s purported lack of adequate disclosure. Of one firm, ABN Amro, Mr. Buffett said: “It’s hard for me to get terribly sympathetic when a bank makes a dumb credit bet.”

What Mr. Buffett thinks about Goldman is something the investment community has been buzzing over for days. Berkshire has invested $5 billion in Goldman preferred shares, and Mr. Buffett is notoriously skeptical of Wall Street mores. One of the low points of Mr. Buffett’s investing career is stepping in at Salomon Brothers when the firm was embroiled in a trading scandal: he had to temporarily assume Salomon’s chairmanship and apologize to Congress.

In the case of Goldman, however, Mr. Buffett and his chief lieutenant, Charles Munger, made it clear they’re on the firm’s side. Goldman and Berkshire have a long history, with Mr. Buffett relying on Goldman as his longtime investment bank. (He’s famously said that Byron D. Trott, a longtime Goldman banker who left to start his own shop, is one of the few Wall Street bankers he trusts.)

According to DealBook’s Andrew Ross Sorkin, who’s one of three panelists asking questions at the meeting, Mr. Buffett essentially took Goldman’s defense that everyone involved in the now-infamous Abacus deal was a sophisticated investor fully capable of evaluating the risks in the subprime mortgage investment. Instead of needing to be told that a hedge fund manager who suggested which bonds should form the underpinnings of the Abacus collateralized debt obligation was also short the bonds, the investors should have relied on their own due diligence, Mr. Buffett said.

“If I have to care who is on the other side of the trade, I shouldn’t be insuring bonds,” he said.

Mr. Buffett added an implicit rebuke of a line of questioning raised by several senators during this week’s Goldman hearings. An investment bank could very well be short the securities Berkshire is buying, and a buyer like Berkshire should be perfectly aware of that in any case.

Mr. Munger added that were he on the S.E.C., he would not have voted to press charges.

That isn’t to say that Mr. Buffett and Mr. Munger think Goldman is blameless here. Mr. Munger suggested that there’s a difference between breaking the law and behaving unethically — and that simply following the former shouldn’t be the basis of a business’ conduct.

$5 billion is enough to buy the conscience of Buffet - simply too much money in the game to stay unbiased and impartial. At a grand scale, the whole investment thing is a scheme. When most smart kids out of college want to work on Wall st. instead of going to the REAL industries that grow the GDP, it's not too long before this country is in trouble.